They don’t always say it that bluntly, but they give you the look. Right? It’s a mix of disgust and contempt. The next time the CEO or CFO gives you the body language or micro-expressions that say, “Why am I paying you”, be prepared! Or, better yet, stay ahead by answering the following questions BEFORE the CEO, CFO and other execs can ask.
1. What is our Customer Acquisition Cost?
Or, what does it cost us to acquire a single customer? How do you determine that? It’s easy. Just take your total sales and marketing spend for a specific time period and divide by the number of new customers for that time period. (Remember to use salaries, commissions and bonuses PLUS overhead in a month, quarter or year.). If you spend $100,000 over a month’s time and acquired 10 new customers, you had a customer acquisition cost of $10,000. Obviously you want this to be low but it depends on your business and your customers.
2. What is marketing’s percentage of that cost?
This one is easy, too. Take all of your marketing costs, and divide by the total sales and marketing costs you used to compute CAC. This will obviously answer some basic questions about the structure and efficacy of your marketing/sales efforts. If you’re focused and motivated, this number will help you.
3. What is the Ratio of Customer Lifetime Value to CAC?
It is a way for companies to estimate the total value that your company derives from each customer compared with what you spend to acquire that new customer. You can find this by computing the Lifetime Value, the CAC and finding the ratio of the two. The higher the LTV:CAC, the more ROI your sales and marketing team is delivering to your bottom line. However, you don’t want this ratio to be too high, as you should always be investing in reaching new customers. Spending more on sales and marketing will reduce your LTV:CAC ratio, but could help speed up your total company growth.
4. What is the time to payback CAC?
This is the number of months it takes for your company to earn back the CAC it spent acquiring new customers. Look, if you don’t have the CEO in the palm of your hand by now, you never will! This is the kind of stuff many of them want to hear. This is Biz Talk (MBA-style) at its best!
5. What is the Marketing Originated Customer Percentage?
Now you’re getting into the stuff that makes the CFO wet! The first four were just a prelude! This metric illustrates the impact that your marketing team’s lead generation efforts have on acquiring new customers. This percentage is based on your sales and marketing relationship and structure. A company with an outside sales team and inside sales support may be looking at 20-40% Marketing Originated Customer %, whereas a company with an inside sales team and lead focused marketing team might be at 40-80%. Engage the CEO by showing his this formula: To calculate Marketing Originated Customer %, take all of the new customers from a period, and tease out what percentage of them started with a lead generated by your marketing team.
6. What is the Marketing Influenced Customer percentage?
This is the icing on the cake, the coup de grace, the je ne sais quoi. It takes into account all of the new customers that marketing interacted with while they were leads, anytime during the sales. It shows your overall influence.
So, get those numbers ready! Puff out your chest! March into that next executive meeting with six charts (forget the PPT slides). Stick them in their faces. Marketing is good. Marketing is vital. You’re good! They need you! Love it!
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